Mapletree Logistics Trust (“MLT”) (SGX: M44U) has seen a large price decrease of 10% in just one week. MLT also reached a new 52-week low as well as a new 5-year low, touching $1.29 on 19 April 2024. Here we look at reasons why MLT fell so much in just a week.
Timing of rate cuts are uncertain
At the beginning of the year, the market was pricing in three interest rate cuts in the US, totalling 0.75%, with the first one expected to commence either in March or May 2024. However, the probability of the first rate cut by June is now at less than 25%, and at 50% in July.
It is now more likely for the first rate cut to occur in September, with a probability of almost 75% being priced in. This means that the timing of the second and third rate cuts are also being pushed back, and they may not even happen this year. Of course, this could all change very quickly should other issues, such as geopolitical tensions, take precedence and rapidly pull the economy down.
The share price is reacting to the current interest rate forecast, as the current outlook suggests that MLT will continue to face higher interest expenses and valuation of its assets will continue to be weighed down as well.
The higher US interest rate environment has also led to the strengthening of the US$ against many developed and developing currencies. The Singapore dollar has also strengthened against these countries in which MLT has exposure in, such as China, Japan, Vietnam, and Malaysia.
Performance of China’s economy affects MLT
China’s gross domestic product (GDP) for 1Q24 expanded by 5.3% YoY, slightly higher than 4Q23 and beating many economists’ expectations.
China’s exports in March decelerated sharply after four months of growth, reflecting the unstable recovery plaguing the world’s second-largest economy.
China’s exports fell by 7.5% in March compared to a year earlier. Imports also fell short of expectations, declining by 1.9% YoY.
A downturn in demand for mechanical and high-tech products, as well as garments, contributed to March’s export deterioration, the steepest decline since an 8.8% plunge last August.
As an owner of logistics assets, lower volume translates into lower demand for space and also keeps prices for warehousing solutions weak.
Moving forward, analysts expect export volumes to rise more slowly this year as consumer spending in advanced economies cools and the tailwind from last year’s sharp drop in export prices fades.
Although import volumes edged down last month, they are forecasted to rebound in the coming months, thanks to fiscal support in China boosting demand.
Diversification also means exposure
Generally, being diversified is good for risk management. In this regard, MLT has a well-diversified portfolio with nearly 190 properties in nine regions. However, looking at the chart above, we can see that China & Hong Kong SAR still account for 41.8% of Assets Under Management (AUM) and 35.9% of Gross Revenue. This would be substantial enough to weigh on the overall sentiments towards MLT.
Other S-REITs fared poorly too
S-REITs with China or Hong Kong exposure, such as CapitaLand China Trust (SGX:AU8U) and Mapletree Pan Asia Commercial Trust (SGX: N2IU) both fell 8% in the last week while logistics-focused names such as ESR-LOGOS REIT (SGX:J91U) and Frasers Logistics & Commercial Trust (SGX: BUOU) saw drops of 7% and 6% respectively. Even a strong and well-diversified name such as CapitaLand Ascendas REIT (SGX:A17U) also fell 4%.
This shows that the recent poor share price performance is fundamentally driven by market and macro factors and is not solely attributable to MLT.
MLT fundamentals are strong
Despite facing higher interest expenses and weakening of currencies in the countries where its assets are based, MLT was still able to eke out a YoY increase in its Gross Revenue and Distribution per Unit. This is a very remarkable performance, especially when other S-REITs are recording double digit percentage declines from the top to the bottom line.
The increase was largely due to higher contribution from existing properties in Singapore and contributions from the acquisitions in Japan, South Korea and Australia completed in 1Q FY23/24. However, growth was partly offset by weaker performance in China.
The depreciation of various currencies against the Singapore Dollar also continued to weigh on growth. On a constant currency basis, revenue and net property income would have grown by 4.8% and 4.1% respectively YoY.
Worse to come or bottom is in?
There are many factors at play which could make the worse yet to come. The global economic outlook remains subdued, weighed down by high interest rates, slowing growth and persistent geopolitical tensions. These are also the biggest drivers of MLT’s share price performance.
As MLT is a diversified REIT, the performance of its assets in other countries also plays a crucial role. Although we may not know when the bottom will be in, it is worth noting that MLT is already trading below its long-term book value and we shared here what MLT and other S-REITs are doing to stay competitive and rejuvenate their portfolios.
For MLT, they have carried out over $900 million of value in accretive acquisitions in 9 modern Grade A assets across 4 countries. These acquisitions are all 100% occupied and with long weighted average lease expiry and would allow MLT to grow its total AUM as well as further diversify.
MLT has performed well this year despite the issues and is due to release its 4Q/FY Mar 2024 results on 29 April 2024. MLT should be an attractive play should the results show further strength.
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